Pensions and self-employment

Updated on 28 July 2022


This page looks briefly at some of the main types of pension that you may be able to have. If you want more information on any of them, we suggest you go to our tax basics section.

Illustration of elderly couple and younger man surrounded by coins

Pensions for the self-employed

Pensions often attract attention in the media, because generally people do not save up enough for later in life.

Employers are obliged to have a minimum level pension scheme in place for workers aged 22 and over who earn more than £10,000 per year under the auto-enrolment rules.

‘Worker’ is a legal term rather than a tax term. Workers are generally employees, but sometimes you can be self-employed for tax purposes but still be classed as a worker for employment law purposes. You can read more about this on the page Am I employed, self employed, both or neither?.

Some information about what is meant by being a ‘worker’ for this purpose can also be found on GOV.UK.

Therefore, in some circumstances you could be a worker for employment law purposes, which includes auto-enrolment, but be self-employed for tax purposes.

As there is no auto-enrolment requirement for the self-employed who are not workers, it is up to you to consider how you might save for your retirement and you may well choose to make provision for yourself.

Growth on your pension savings is generally free of tax. When pensions are paid out to you they are taxable, but you should be able to take some part of the pension as a tax-free lump sum.

We cannot advise you as to which type of scheme might be best for you, nor whether or not you should pay into a particular pension.

We recommend that you get some financial advice, for example from an independent financial adviser (IFA) or there is information on the Moneyhelper website.

What are the different types of pension scheme?

What is the state pension?

The government pays the state pension as a regular payment to eligible people who have reached state pension age. You can work out when you will reach state pension age by using the calculator on GOV.UK.

If you reach state pension age on or after 6 April 2016, you will fall under the flat rate state pension, known as the new state pension.

If you are self-employed, paying Class 2 National Insurance contributions (NIC) helps you to qualify to receive the state pension.

There is more information about the state pension in our tax basics section.

Can self-employed people sign up to auto-enrolment pension schemes?

Although there is currently no way of self-employed people being automatically enrolled into a pension, some of the low-cost pension schemes that are used by employers for their employees are also open to the self-employed. You may wish to consider these types of scheme when weighing up your pension savings options.

The government has set up one such scheme, called Nest. As noted above, we cannot give financial advice or any particular recommendation.

What are stakeholder and personal pensions?

A personal pension plan is a way of saving regularly for your retirement. You can set one up yourself and invest in it personally. The funds in the scheme are invested to pay your pension when you retire. You can get a personal pension or stakeholder pension (which is a specific kind of personal pension) from financial services companies such as insurance companies, bank and building societies (known as 'providers').

Depending on the type of investment there may also be some charges you will have to pay to the pension provider out of the amount you pay in.

There is more information about stakeholder and personal pensions in our tax basics section.

What are retirement annuity schemes?

If you took out a pension policy before 1 July 1988 this would have been called a retirement annuity policy.

There is more information about retirement annuity schemes in our tax basics section.

What are the rules for paying into pensions?

The tax relief you can get on pension savings is limited.

You can save in more than one pension scheme at the same time, for example in two different personal pension schemes; or if you are self-employed and also employed you can save in your personal pension scheme as well as in your employer's pension scheme.

There is more information on the tax basics section on the rules for pension contributions, including tax relief and the annual and lifetime allowances.

What tax relief can I get on payments?

If you are under the age of 75, you can get tax relief on contributions of up to 100% of your UK earnings if you are a UK taxpayer, subject to the 'annual allowance' (see below).

Some pension payments receive tax relief at source, such as those into personal pension schemes outlined above.

If you do not get full tax relief at source when making the payments, you must claim it through your Self Assessment tax return or by making a claim to HMRC by telephone or letter. You can find contact details for HMRC on GOV.UK.

For more information on tax relief on pension contributions go to the tax basics section.

What is the maximum amount I can pay into my pension in any tax year?

For information on the annual and lifetime allowances, go to the tax basics section.

When can I take my private pension?

Generally, the earliest you can take your personal pension is at age 55 (rising to age 57 from April 2028).

More information on the rules for taking pensions is given in our pensioners section.

Where can I find more information?

See our tax basics section for a list of more sources of information.

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